# Direct Material Cost Formula by cjv13696

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Direct Material Cost Formula document sample

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Instructor:                                                                         Course:
Managerial Accounting, 3rd Edition, by Weygandt, Kieso, and Kimmel
Solving Managerial Accounting Problems Using Microsoft Excel for Windows by Rex A Schildhouse
Problem P4-1B, Waves Galore, Inc. manufactures hair curlers and blow-dryers. The handheld hair curler is Waves Galore's high volume
product,         80,000    units annually. It is a "large barrel", 20-watt, triple-heat appliance designed to appeal to the teenage market
segment with its glow-in-the-dark handle. The handheld blow-dryer is Waves Galore's lower-volume product,                         40,000      units
annually. IT is a three-speed, 2,000 watt appliance with a "cool setting" and a removable filter. It also is designed for the teen market.
Both products require            1             hour of direct labor for completion. Therefore, total annual direct labor hours are          120,000
(80,000 + 40,000)             Expected annual manufacturing overhead is                      \$441,600          Thus, the predetermined overhead
rate is        \$3.65     per direct labor hour. The direct material cost per unit is            \$5.25          for the hair curler and    \$9.75
for the blow-dryer. The direct labor cost is              \$8.00         per unit for the hair curler and blow-dryer.
Waves Galore purchases most of its parts from suppliers and assembles the finished products at its Fargo, North Dakota plant. It recently
adopted activity-based costing, which after year-end will totally replace its traditional direct labor-based cost accounting system. Waves
Galore has identified the following six activity cost pools and related cost drivers and has assembled the following information.
Expected
Use of         Expected Use of Drivers by Product
Estimated            Cost
Activity Cost Pool              Cost Driver                Overhead           Drivers          Curlers                         Dryers
Purchasing                            Orders                       \$57,500              500               170                          330
Receiving                             Pounds                        42,000        140,000             58,000                        82,000
Assembling                             Parts                       166,000        830,000            415,000                      415,000
Testing                                Tests                        52,000        130,000             82,000                        48,000
Finishing                              Units                        60,000        120,000             80,000                        40,000
Packing and shipping                  Cartons                       60,500          12,100              8,040                        4,060
\$438,000

Instructions:
(a) Under traditional product costing, compute the total unit cost of both products. Prepare a single comparative schedule of the individual
costs by products, in the format provided below.

Products
Manufacturing Costs                 Home Model                   Commercial Model
Label                                   Amount                         Amount
Label                                   Amount                         Amount
Label                                   Amount                         Amount
Total unit cost                       Formula                       Formula

(b) Under ABC, prepare a schedule showing the computations of the activity-based overhead rates (per cost driver).

Estimated                        Total Expected Use of                               Activity-Based
Activity Cost Pool                           ÷                                                =
Purchasing                     Amount           ÷               Amount Label                     =                  Amount             Label
Receiving                      Amount           ÷               Amount Label                     =                  Amount             Label
Assembling                     Amount           ÷               Amount Label                     =                  Amount             Label
Testing                        Amount           ÷               Amount Label                     =                  Amount             Label
Finishing                      Amount           ÷               Amount Label                     =                  Amount             Label
Packing and shipping           Amount           ÷               Amount Label                     =                  Amount             Label
Formula

FileName: a26158c2-c0bc-469e-a48d-9129ee2231aa.xls, Tab: Problem P4-1B, Page 1 of 3, 1/24/2011, 11:50 AM
(c) Prepare a schedule assigning each activity's overhead cost pool to each product based on the use of cost drivers. (Include a computation
of overhead cost per unit, rounding to the nearest cent.)

Curler                                                   Dryer
Activity-                                               Activity-
Expected                                                   Expected
Based            Cost                                   Based          Cost
Activity Cost Pool                       Use of                                                     Use of
Drivers                                                    Drivers
Rates                                                   Rates
Label                                           Amount         Amount         Formula                     Amount     Amount          Formula
Label                                           Amount         Amount         Formula                     Amount     Amount          Formula
Label                                           Amount         Amount         Formula                     Amount     Amount          Formula
Label                                           Amount         Amount         Formula                     Amount     Amount          Formula
Label                                           Amount         Amount         Formula                     Amount     Amount          Formula
Label                                           Amount         Amount         Formula                     Amount     Amount          Formula
Total costs assigned                                                          Formula                                                Formula
Units produced                                                                Amount                                                 Amount
Overhead cost per unit                                                        Formula                                                Formula

(d) Compute the total cost per unit for each product under ABC.

ABC Manufacturing Costs                   Curler                       Dryer
Direct materials                         Amount                       Amount
Direct labor                             Amount                       Amount
Total cost per unit                    Formula                      Formula

(e) Classify each of the activities as a value-added activity or a non-value-added activity.

Activity                   Value - Vs - Non-Value-Added

(f)(1) Comment on the comparative overhead cost per unit for the two products under ABC.

(f)(2) Comment on the comparative total costs per unit under traditional costing and ABC.

FileName: a26158c2-c0bc-469e-a48d-9129ee2231aa.xls, Tab: Problem P4-1B, Page 2 of 3, 1/24/2011, 11:50 AM
Instructions for the Microsoft Excel Templates

Detail and information on Excel is contained within the manual.

Striking the "F1" key or following the path "Windows>Excel Help" will invoke the Office Assistant
and bring up one of several help menus.

Type your name into the cell "D5". This will be copied by formula to the rest of the pages as required.

Type the due date of your problem into cell "I5". This will be copied by formula to the rest of the pages as required.

Type the instructor's name into cell "D6". This will be copied by formula to the rest of the pages as required.

Type the course identifier into cell "I6". This will be copied by formula to the rest of the pages as required.

The problem is identified for you in cell "B7".

In "DATE" cells enter the date in any of several formats and Excel will format it correctly.

If more than one page is preformatted into the problem, page breaks are preset and formulas are
set to copy the header into the remaining pages.

Place the proper account title in the cell where the word "ACCOUNT" appears on the template.

Place the amount in the cell where the word "AMOUNT" appears on the template. A formula may be placed in

Enter a number like 914 to signify units or gallons where the word "NUMBER" appears.

Write a formula into cells where the word "FORMULA" appears. In these cells, an amount calculated outside of

Place the explanation for the entry in the cell where the word "EXPLANATION" appears on the template.

Insert the account number where "ACCT #" appears on the template during posting.

Insert the journal reference where "JOURN #" appears on the template during posting.

Insert the title in the cell where "TITLE" appears on the template.

The print area is defined to fit onto 8 1/2" X 11" sheets in portrait or landscape mode as required.

The gray filled cells define the perimeter of the problem and the print area.

The problem is formatted for whole dollars with comma separations (no cents) except where required.

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Negative values may be shown as (\$400) vice -\$400.

Enter a string like: (\$259,417 X 12 months) + (0.3651 X 5,434,631) where the word TEXT appears.

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